According to Zhito Finance APP, Huajin Securities released Research Reports stating that the production quota for the third-generation refrigerants (HFCs) in 2025 will be 0.7919 million tons, an increase of 0.0434 million tons compared to 2024. The internal production quota will be 0.3896 million tons, an increase of 0.0472 million tons compared to 2024. As domestic production quotas are implemented, some companies with smaller quotas are nearing the end of their trades, leading to increased costs for companies purchasing quotas. In an atmosphere where leading companies have a strong willingness to raise prices, along with the current policy context, this is bullish for companies to support prices and confidence in price increases. Additionally, with the significant gap between domestic product export prices and those of other countries, export market prices are expected to rise further. It is anticipated that in 2025, production companies will continue to raise prices in both domestic and foreign markets.

The main viewpoints of Huajin Securities are as follows:

Event: On December 16, 2024, after accepting corporate applications, the Ministry of Ecology and Environment publicly announced the refrigerant quotas for the year 2025.

The second-generation quota is being reduced as scheduled.

According to the quota announcement, the production quota for the second-generation refrigerants (HCFCs) in 2025 will be 0.1636 million tons, a decrease of 0.0496 million tons compared to 2024. The internal production quota will be 0.086 million tons, a decrease of 0.0421 million tons compared to 2024.

Among them, the production quota for R22 is 0.1491 million tons, with an internal production quota of 0.0809 million tons, a decrease of 0.0314 million tons and 30,100 tons compared to 2024, respectively; the R141b production quota is 9157 tons, a decrease of 11938 tons compared to 2024, leaving only Zhejiang Sanmei Chemical Industry with quotas; the R142b production quota is 3360 tons, a decrease of 5995 tons compared to 2024; the production quotas for R123 and R124 are 1738 tons and 250 tons, respectively, a decrease of 472 tons and 57 tons compared to 2024, still monopolized by only Sinochem Blue Sky.

The largest share of HCFC production quotas belongs to DONGYUE GROUP, accounting for 27.26%; secondly, Zhejiang Juhua accounts for 23.79%; Meilan Chemical and Zhejiang Sanmei Chemical Industry rank third and fourth, accounting for 19.98% and 10.76% respectively.

The third generation quotas have increased slightly, with overall magnitudes lower than previous guidance.

In 2025, the production quota for third-generation refrigerants (HFCs) is 0.7919 million tons, an increase of 0.0434 million tons compared to 2024, with an internal production quota of 0.3896 million tons, an increase of 0.0472 million tons compared to 2024.

The quota for R32 has slightly increased compared to 2024, with a production quota of 0.2803 million tons, an increase of 0.0408 million tons, and an internal production quota of 0.1845 million tons, an increase of 0.0425 million tons, slightly less than the originally planned increase of 0.045 million tons in the consultation draft; the quota for R134a has decreased significantly compared to 2024, with a production quota of 0.2083 million tons in 2025, a decrease of 0.0074 million tons, and an internal production quota of 0.0804 million tons, a decrease of 2241 tons; the production quota for R125 is 0.1673 million tons, an increase of 1614 tons.

The production quota for R143a is 0.0473 million tons, an increase of 1781 tons; the production quota for R152a is 0.0337 million tons, an increase of 1063 tons; the production quota for R227ea is 0.0314 million tons, an increase of 157 tons; the production quota for R245fa is 0.0195 million tons, an increase of 5354 tons (previously announced an increase of 8000 tons); the production quota for R236fa is 756 tons, a decrease of 86 tons; the production quota for R236ea is 191 tons, an increase of 50 tons (previously announced an increase of 50 tons); the production quota for R41 is 102 tons, an increase of 52 tons (previously announced an increase of 20 tons). (Note: The quotas mentioned above for 2024 are the initial allocations at the beginning of the year, adjustments and increases mid-year are not included).

In 2025, over 95% of the total HFCs quotas are concentrated in Zhejiang Juhua (including Feiyuan), Zhejiang Sanmei, Sinochem, DONGYUE GROUP, Yonghe, Guangdong Hec Technology Holding, and Meilan, with Zhejiang Juhua holding 37.86% and showing significant advantages. Overall, the production quota for third-generation refrigerants has increased by 0.0434 million tons compared to the beginning of 2024, but due to mid-year adjustments and increases in 2024, the actual increase is 0.0086 million tons compared to the end of 2024, therefore the incremental increase is limited. For third-generation refrigerants, 2024 is the first year of quota management, and in previous years, there has been some accumulation of social inventory. After a year of digestion, current product inventory is relatively low, while downstream terminal demand shows positive expectations; thus, it is expected that there will still be periodic shortages in 2025. Due to the high concentration of production capacity, the operation of facilities has a significant impact on the market.

With both supply and demand supporting each other, prices are expected to continue to rise.

In terms of downstream demand, according to the industry report, in November 2024, 16.71 million household Air Conditioners were produced, a year-on-year increase of 55.7%; sales reached 15.38 million units, a year-on-year increase of 44.2%. Of these, domestic sales were 6.73 million units, a year-on-year increase of 28.7%; exports were 8.65 million units, a year-on-year increase of 59.1%. As 2024 is nearing its end, domestic sales of household Air Conditioners have welcomed a "warm winter", achieving unexpectedly good growth in production and sales throughout the fourth quarter driven by substantial national subsidies; export performance remains strong, with robust external demand and noticeable growth in export orders. Production scheduling data shows that the production of household Air Conditioners in December 2024/January 2025/February 2025 increased by 31.7%/4.1%/31.5% respectively compared to the same period last year, with domestic and export production in December 2024 increasing by 15.0% and 48.5% respectively compared to the same period last year.

With the implementation of domestic production quotas, the trading activities of some smaller quota enterprises are nearing completion. The cost for enterprises purchasing quotas is increasing, and there is a strong atmosphere of willingness to raise prices among leading companies. Additionally, under the current policy context, there is a Bullish sentiment for companies to maintain and increase prices. Furthermore, due to the significant price difference between domestic product export prices and those of other countries, the export market prices are expected to rise further. It is anticipated that by 2025, production companies will continue to raise prices in both domestic and foreign markets.

According to Baichuan Yingfu, as of December 19, 2024, the average price of R22 is 32,500 yuan/ton, an increase of 66.67% compared to the beginning of the year; the average price of R32 is 40,500 yuan/ton, an increase of 138.24% compared to the beginning of the year; the average price of R134a is 40,000 yuan/ton, an increase of 45.45% compared to the beginning of the year; the average price of R125 is 38,000 yuan/ton, an increase of 38.18% compared to the beginning of the year; and the average price of R410a is 39,000 yuan/ton, an increase of 73.33% compared to the beginning of the year.

Investment suggestion: In 2025, the refrigerant quotas will be implemented, and high prosperity driven by supply and demand resonance will continue, with industry profits continuously improving. It is recommended to focus on Zhejiang Juhua (600160.SH), Zhejiang Sanmei Chemical Industry (603379.SH), Yonghe Co. (605020.SH), Haohua Chemical Science& Technology Corp. (600378.SH), DONGYUE GROUP (00189), Guangdong Hec Technology Holding (600673.SH), and upstream raw material symbol China Kings Resources Group (603505.SH).

Risk warning: Policy uncertainty; downstream Air Conditioner Autos demand may not meet expectations; significant raw material price fluctuations risk; progress of four-generation refrigerant replacement may exceed expectations; safety and Eco-friendly Concept risks.